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If, however, your subcommittee believes that consideration of these codifying provisions would impede or delay action on the President's specific recommendations, they could be deleted from H. R. 8677 and presented separately. The Bureau of the Budget would have no objection, if the subcommittee desires to sever the codifying provisions from the bill now under consideration. The substance of the President's recommendations is covered by sections 1, 2, 3, 4, 5, 16, 17, 18, 19, 20, 21, 22, 24, 25, 26, 27, 28, and 29 of H. R. 8677. Sincerely yours,

F. J. LAWTON, Director.

I will read the sections again, if you want to write them on the cover. These are the acceptable sections: 1, 2, 3, 4, 5, 16, 17, 18, 19, 20, 21, 22, 24, 25, 26, 27, 28, and 29.

H. R. 8677 was introduced by the Honorable Edward J. Hart, chairman of the Committee on Merchant Marine and Fisheries.

As the first witness I would like to call on the Governor of the Panama Canal, the Honorable Francis K. Newcomer.

Governor Newcomer. Yes, sir.


Mr. O'TOOLE. At this time, Governor, I would like to express to you, on behalf of the committee, our sincere appreciation for the courtesy and the cooperation that was shown to the committee on its visit last November to the Canal Zone. They were among the most memorable days of our lives, and we appreciate very greatly the courtesies and the cooperation shown to us. On behalf of the committee we extend to Mrs. Newcomer our best.

Governor NEWCOMER. Thank you, Mr. Chairman. It was a privilege to have you with us, and we hope that you can visit us again. Mr. O'TOOLE. You may proceed, Governor.

Governor NEWCOMER. Mr. Chairman and members of the committee, I have prepared a general statement which is a brief explanation of the purposes of this bill which I will be glad to read if you would care to have it read. Otherwise I will file it for the record. It is about six pages in length.

Mr. O'TOOLE. You may proceed as you wish.

Governor NEWCOMER. 1. The bill, H. R. 8677, was prepared under my supervision at the request of the Secretary of the Army, who, in turn, had been requested by the President to initiate the action necessary to implement recommendations 1 and 3 contained in the report and recommendations of the Bureau of the Budget with respect to the organization and operations of the Panama Canal and Panama Railroad Company. That report, as transmitted by the President, appears, of course, in House Document No. 460.

2. The report of the Bureau of the Budget contains not only the recommendations of the Bureau, and its reasons and arguments in support of such recommendations, but also a comprehensive statement of the background and origin of the Budget Bureau study which produced the report. It would appear not to serve any useful purpose to repeat or duplicate, in this statement, material which is contained in that report.

3. Upon the completion of this bill, in draft form, it was transmitted to the Secretary of the Army by my letter of April 24, 1950. That


letter consisted of a rather extensive statement in explanation of the provisions of the bill, particularly by way of a detailed discussion and explanation of individual sections. I am assuming that this committee has available copies of that letter, and I shall therefore endeavor so far as possible to avoid duplication of that material in this statement. 4. The over-all purpose of the bill is to implement recommendations 1 and 3 of the Budget Bureau report, which recommendations contemplate, in broad terms, the transfer to the Panama Railroad Company of all of the functions of the Panama Canal except those relating to government, health, and sanitation; the change of the corporation's name to Panama Canal Company; the change of the name of the agency, the Panama Canal, to Canal Zone government; and the vesting in the corporation of authority to fix the rates of tolls for the use of the Panama Canal. The sections of the bill are arranged in numerical order by title and section of the Canal Zone Code.


5. The provisions of the bill may be said to be divisible into three main categories, namely

(1) Provisions designed to adapt the present corporate charter of the Panama Railroad Company to the altered and enlarged mission of the corporation;

(2) provisions designed to adapt the other statutes relative to the Canal and Railroad to the new distribution of functions as between the "agency" and the corporation; and

(3) provisions designed to amend existing sections respecting tolls, for the purposes of vesting in the corporation the authority to fix tolls and of prescribing the bases of, or formula for, tolls.


6. Creation of the corporate entity of the Panama Canal Company is to be accomplished by amendment of the existing charter of the Panama Railroad Company (Public Law 808, 80th Cong.), and changing the name to the Panama Canal Company, which will then embrace the functions of the combined organizations of what are now known as the Panama Canal and the Panama Railroad Company, except for the government and health functions. The agencies now known as the Panama Canal and the Panama Railroad Company will cease to exist and in their place will be the Panama Canal Company and the Canal Zone government under the direction of the Governor of the Canal Zone, who will also be president of the Panama Canal Company. The drafting of this legislation has required a careful study of all the statutes applicable to the Panama Canal and Canal Zone and other agencies involved. The amendments to the charter of the Panama Railroad Company consist principally of—

(1) The change in the name of the corporation (sec. 17 of bill); (2) the addition, in the statement of the purposes for which the corporation was created, of the principal new purpose of maintaining and operating the Panama Canal (sec. 17 of bill);

(3) the restatement of the charter provision which obligates the corporation to pay interest, at least annually, on the net direct investment of the Government in the corporation, in order to relax the

requirement as to the time of payment of such interest, bearing in mind that the interest charges are properly for payment out of earnings, and may not in a given year be earned (sec. 18 of bill);

(4) the insertion of a provision obligating the corporation to pay into the Treasury amounts sufficient to reimburse the Treasury for (a) the annuity payments made by the United States to the Republic of Panama, and (b) for the net costs of operation of the agency known as the Canal Zone government (sec. 19 of bill);

(5) the insertion of a new section authorizing appropirations to cover losses which may be sustained by the corporation in the conduct of its activities, as a result, for example, of changes in economic conditions; such appropriations being in the nature, in effect, of noninterest-bearing loans in replacement of funds lost (sec. 22 of bill); and

(6) the insertion of a new section authorizing the President to transfer, from the "agency" to the corporation, the Panama Canal (that is the waterway) and any or all of the facilities appertaining to the business operations now conducted by the "agency" (sec. 22 of bill).


7. It would seem not inappropriate to call attention briefly to the provisions respecting the financial structure and goal, or burden, of the corporation under the corporate charter, including the amendments thereto accomplished by this bill.

8. The more important parts of the bill relating to the financial structure of the new organization are covered by sections 12, 18, 19, 21, 22, 24, 25, and 28. At the present time the Panama Railroad Company and a number of the Panama Canal activities known as business divisions are self-supporting and produce profits. In the case of the Panama Railroad Company, the excess funds over current requirements are paid into the Treasury in the form of dividends as determined by the Board of Directors. On the other hand, the net profits of the business operations of the Canal, as determined at the close of each fiscal year in accordance with section 52 of title 2, Canal Zone Code, are forthwith deposited in the Treasury. Existing law requires that tolls, taxes, fees, and fines be deposited in the Treasury as received, and since this source of revenue is not now available, it follows that appropriations are required annually to finance the tolls-producing operations, including the expense of government and health functions. Under the proposed bill the tolls will become available to the corporation, which will then be required to defray all its expenses, including the expenses of the Canal Zone government and health functions and, in addition and to the extent earned, pay into the Treasury interest on the Government's net direct investment in the corporation at a rate determined by the Secretary of the Treasury. This is one of the fundamental changes to place the operations on a corporate basis.

9. The financial burden of the corporation would be, in summary(1) to pay its costs of operation, including depreciation, and including the reimbursement of other agencies for expenditures made on behalf of the corporation;

(2) to pay the prescribed interest on the net direct investment of the United States;

(3) to reimburse the Treasury for the annuity payments made by the United States to the Republic of Panama;

(4) to reimburse the Treasury for the net costs of operation of the Canal Zone Government; and

(5) to utilize its revenues, including tolls, for the above purposes. 10. Appropriations would not, of course, be required for the normal operating expenses of the corporation. In case losses were sustained in the conduct of the corporate activities, appropriations would, as aforesaid, be authorized for working-fund requirements. Until such time as an adequate surplus should be accrued, it would be necessary to secure appropriations for increased capital needs, and such appropriations would constitute additional direct investments on which interest would accrue.


11. In the present bill, sections 1 to 16, 23, 26, and 27 are designed to adapt the statutes relative to the Panama Canal and the Panama Railroad Company, other than the corporate charter, to the new distribution of functions which the bill would effect as between the agency and the corporation. These sections appear to require no extended general comment.

12. A section of considerable interest is section 1 of the bill, amending section 5 of title 2, and establishing the new name (Canal Zone Government) and diminished functions of the agency now known as the Panama Canal.

13. A further section of importance is section 7 of the the bill amending section 10 of title 2, Canal Zone Code, respecting claims for damages for injuries to vessels, or to the cargo, crew or passengers of vessels, occasioned by the operation of the Canal. The transfer of Canal operation to the corporation makes imperative some change in said section 10.


14. Sections 24 and 25 of the bill would amend the existing tolls sections (secs. 411 and 412, respectively, of title 2, Canal Zone Code) in such manner as to vest in the corporation the authority to fix measurement rules and tolls, and to prescribe the bases of tolls. In explanation of these sections I wish to refer to, rather than to repeat, the comment in my letter to the Secretary of the Army of April 24, 1950 (page 9, and following, of that letter).

15. In concluding my general statement on the bill I should like again to refer to the letter of April 24, 1950, in explanation of the provisions of the bill, and, in particular for its detailed discussion of individual sections.

That concludes my general statement, Mr. Chairman.

Mr. O'TOOLE. Are there any questions at this point?

In view of the great knowledge of and great interest shown in this matter by two other members of the Committee on Merchant Marine and Fisheries, the Chair is taking the liberty to invite to the hearing this morning two sons of the Golden West, and distinguished Representatives from that coast, the Honorable John J. Allen, and the

Honorable J. F. Shelley, and to invite them to take part in our deliberations.

Mr. ALLEN. Thank you very much, Mr. Chairman.

Mr. O'TOOLE. Are there any questions?


I think perhaps, if it would meet with your approval, as the discussion develops we may want to ask the Governor some questions more or less informally.

Mr. O'TOOLE. Will it be possible, Governor, for you to stand by to render assistance, if necessary?

Governor NEWCOMER. Yes, sir.

At this time, may I say, Mr. Chairman, in view of the letter that you read this morning with respect to the possible omission of some sections of this bill, that we have had prepared in mimeograph form the present law with the changes incorporated right in it that would be effected by this bill, and I believe it can be shown fairly readily that the changes proposed by this bill, as drafted, are really essential to the accomplishment of the purposes of the bill and will not add to the difficulty of considering the bill.

I would be glad when the time comes to distribute those if you care to refer to them, showing in very convenient form what the changes


(The information referred to follows:)

[H. R. 8677-Showing proposed changes in existing law (existing law proposed to be omitted is enclosed in black brackets and new matter is italicized]



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[5. GOVERNMENT AND OPERATION OF CANAL AND GOVERNMENT OF CANAL ZONE.— The President is authorized to govern and operate the Panama Canal and govern the Canal Zone, or cause them to be governed and operated, through a Governor of the Panama Canal and such other persons as he may deem competent to discharge the various duties connected with the care, maintenance, sanitation, operation, government, and protection of the Canal and Canal Zone.]

5. Establishment Administration, and Functions of Canal Zone Government. The independent agency of the United States heretofore known as the Panama Canal shall hereafter—

(1) be known as the Canal Zone Government;

(2) be administered, under the supervision of the President or such officer of the United States as may be designated by him, a Governor of the Canal Zone; and

(3 be charged, except as otherwise provided by law, with the performance of the various duties connected with the civil government, including health, sanitation, and protection of the Canal Zone.


Appointment of other necessary persons, see section 81 of this title, as amended.

7. CONTROL AND JURISDICTION OF GOVERNOR OVER CANAL ZONE.-The Governor of the [Panama Canal] Canal Zone shall:


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